People driving SUVs are not the only ones worried about rising oil prices. Its impact is being felt throughout industry, and baking is no different. Add in spiralling costs for wheat and other raw materials, and protecting margins in our business is getting harder and harder.
With oil hitting record highs, direct effects are being felt in key areas like transportation, while pressure is on the packaging sector, where petroleum is a key component in production. The rapid and sustained oil price rise is also translating into higher costs for raw material production.
The challenge for bakers
How can bakers cope where forces outside their control mean volatile input prices and severe margin pressure? There are multiple ways to do this: reviewing and improving processes, investing in your brand, upskilling staff. But in a margin business like baking, there is nothing better than achieving real efficiencies - looking at all those inter-related parts of your business and identifying where you can do more with less.
Simplicity is the key factor. Comprehensive, daily data as well as analysis of trends over time, make it simpler to achieve real efficiencies in inventory, production and sales. Inventory is a high capital expense for any bakery and there is a significant risk in managing your stock of both ingredients and finished products.
If you can gather the right information, there are several ways to improve inventory management. Being able to quickly and accurately compare actual versus theoretical usage of raw materials means you can determine the accuracy of recipes and wastage.
Easy access to full purchase and usage history equips you with good data to negotiate hard with suppliers. Setting automated re-orders - based on defined on-hand levels, delivery lead times and future forecast or actual requirements - ensures your inventory is as lean as possible. Volatility in input costs can rapidly erode margins. Selling products near to or below cost is not sustainable. Being able to rapidly analyse ingredient cost changes relative to sales helps determine which products need attention. Discontinuing low-margin products and introducing new higher-margin ones enables your business to respond to input price volatility.
Capturing information that enables you to identify inefficiencies in production processes is powerful. For example, comparing yield at the end of a production line (actual as measured) versus expected output (theoretical from recipes/inputs); recording and reporting of wastage in the production process; and having a clear view of stock on hand, orders to be filled and capacities of production lines to improve scheduling efficiency.
Better-quality sales data enables you to match supply to demand more closely, achieving not just fewer returns but also reducing the likelihood of shortages.
Key information includes forecasting based on previous order/usage history that flows into production planning, impact analysis based on sales history and ’what-if’ planning, and being able to easily compare production costs to sales results.
Gaining a single, simple, integrated view of all this information is not easy. Many small to medium-sized bakeries will be focused on computerising their accounting and payroll, and then use tools like spreadsheets and manual systems to manage inventory, production and logistics. While only larger manufacturers could previously afford integrated computer systems (enterprise resource planning or ERP systems), these kind of applications are now increasingly cost-effective for smaller organisations.
Integrated computer systems not only provide the information you need to improve efficiency, but deliver immediate cost gains in areas such as administration, where data entry and invoicing requirements can be substantially reduced.
The challenge laid down by the growing oil crisis and other factors, such as wheat price rises, is to work smarter, not just harder. Some of those smarts come from the information at your fingertips, which improves your control over your day-to-day operation. Selling that SUV may also be a clever move.
l Kerry Glynn is sales and marketing director of GlobalBake, a company specialising in computer systems for manufacturing bakeries, with customers throughout Australia, as well as the USA and New Zealand. [http://www.globalbake.com]
=== Using IT to best effect ===
Despite increasingly black pictures being painted about the economy, companies are facing up to the major benefits achievable through effective supply chain planning and management, with supply chain IT and software being recognised as key to survival.
"Though the next 18 months will be a rough ride, what traditionally would have amounted to broad-brush cost-cutting is now better targeted through supply chain reconfiguration and optimisation," says global supply chain consultant and software developer Barloworld Optimus’ global business development director Fraser Ironside. "With software to pinpoint precisely where and how savings can be made, inventory management and network optimisation tools represent the most effective antidote to deepening economic pressures."
== Greggs overhaul ==
One example is Greggs, which has managed to cut costs by overhauling its delivery schedules as part of a major review of its fixed-route operations. It is rolling out Paragon routing and scheduling optimisation software nationally, following a trial at its Manchester bakery, which saved eight vehicles and yielded annual transport savings of around £200,000.
Greggs, which now has a fleet of 250 vehicles delivering to over 1,300 stores, introduced Paragon Multi Depot software - allowing multiple depots to be planned centrally. The company operates 12 central bakeries, each of which supplies around 100 shops via fixed routes. "For us, distribution is complex," explains national logistics project manager Paul Duggan. "We deliver everything the shops sell, so our delivery patterns include frozen, chilled and ambient produce.
"Previously we distributed everything overnight, with products leaving the bakeries as soon as they emerged from the ovens at around 3am and reaching each store by 7am. As a result, such a tight time window demanded a very large fleet of trucks."
The software has enabled Greggs to reassess its delivery patterns and develop a more cost-effective distribution strategy. As Duggan explains: "We used Paragon to double-shift the vehicles. So, during test-runs of the project, we were able to distribute fresh produce overnight, while chilled and frozen produce were delivered across the day."
== Irwin’s improves productivity ==
Meanwhile, Northern Irish independent firm Irwin’s Bakery recently implemented Lawson QuickStep Food and Beverage, a pre-configured enterprise software suite, coupled with Lawson Business Intelligence, with the aim of improving productivity and better supply chain planning. Irwin’s is Northern Ireland’s largest bakery, specialising in the production of a wide range of breads, including the Rankin Selection, supplied into major UK retailers. Tackling cost control to combat lower gross margins via the software was a key reason for turning to IT solutions, says Bill Brown, Irwin’s chief executive. The functions enabled Irwin’s management to set practical business performance targets and identify potential financial and non-financial gains before committing capital expenditure to new projects.
The firm, which has also installed Lawson’s Opportunity Analyzer, says it helped identify improvements to planning and sales, while monitoring production performance; it allowed the firm to integrate processes across all departments while removing waste and tightening the supply chain. "A key aspect of our growth strategy is based on maximising our internal efficiencies to deliver a significantly enhanced service across our customer base, which has seen rapid growth, particularly within our export markets," says Brown. "We needed a solution that had the flexibility and functionality to scale with us as we grow."
Growing businesses find the need to explore IT options ever more pertinent. Upscaling by introducing new machinery can suddenly open up doors for producing more volume or a wider range of products. But Graham Jones, managing director of Logistic Planning’s ToolBox Software, says firms often fail to keep pace by upgrading their despatch systems. "Often, no action is taken, other than providing more baskets and vehicles to allow the despatch department to cope with the extra workload." He says ToolBox’s computer-aided dipsoTool distribution system, which has been installed in 400 bakery firms worldwide, allows products to be picked and shipped faster and more efficiently, and in a paperless environment. Streamlining every detail of the supply chain is where IT systems can help businesses eventually emerge from the credit crunch leaner and stronger.